Chapter Four

Decision Making
Introduction
Managers are decision makers. Decision making is risk
taking.
Decision making is choosing from alternatives. When
there is no alternative there can not be decision.
 Decision Making Process
1. Define the problem.
2. Identify limiting factors.
3. Develop potential alternatives.
4. Analyze the alternatives.
5. Select the best alternative.
6. Implement the decision.
7. Establish a control and evaluation system.
Classifications of decisions
Programmed and non programmed
Major and minor
Routine and strategic
Individual and group decisions
Individual and group decisions
Individual decisions are decisions made by an
individual. This is usually done for minor and routine
types of decisions when the analysis of variables is
simple and when we have standing plans.
Important and strategic decisions are generally done
by a group managers.
Advantages of group decisions
Increased acceptance
Easy to coordinate
Easier communications
Availability of more information
Disadvantage of group decision
It takes longer period of time
Groups can be indecisive
Groups can compromise
Groups can be dominated
 Simple and complex decisions
Low
certainty
Judgmental
decisions
Adaptive
decisions

Mechanistic or routine
High Analytical decisions
certainty
decisions

complex
simple
Complexity
 Nature of problems and decision making
in organizations
Organizational
level Nature of Nature of decision
Highest level problems making
y
arch

unstructured
Non
hier

programmed
decision
l
iona
t
niza
a
Org

Programmed
structured decision
Lowest
level
Levels of decision making
Top level strategic decision making
 determinations of goals, policies, strategies,

 It is complex and non routine

Medium level management control DM.

 It involves with efficient and effective utilization of resources.

 evaluating new ideas, new products, new services

Low level management- operational DM

 specific problems faced by operational managers.
Decision making environment
Virtually all decisions are made in an environment of
at least some uncertainty.
The degree will vary from relatively certain to great
uncertainty.

Certainty Risk uncertainty

Decision making under certainty
Decision maker are relatively sure about what will
happen when they make decisions.
Information is available and is considered to be
reliable and cause and effect relationship are known.
Decision making under uncertainty
When decision maker has meager database
They do not know whether or not the data are reliable
Are unsure about whether or not the situation may
change
They cannot evaluate the interaction of the different
variables.
Decision making under risk
Factual information may exist but may be incomplete.
Probabilities are used to make decisions.
Do women are more effective in decision making than
men?